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Appraised Value: The Ups & Downs Of How Much A House Is
Determining Fair Market Value is an eternal struggle and major balancing act. That’s because
buyers want a house to appraise on the low side—to keep the purchase price down. While
sellers want the same house to appraise on the high side—to make the sale price higher. And
then you’ve got the owners of the house—who also want the appraisal to be on the low side, in
order to keep the property taxes down.
So with all these different agendas and points of view, how is the fair market value of a real
estate property actually determined?
Once a year, your county sends all area homeowners official notices that put a dollar value on
their property. And property taxes are based on those dollar values. But before those notices
get sent out, a long, detailed process usually takes place. First, the land is valued as if it’s
vacant—an empty lot, in other words. Then any improvements are described and measured.
Improvements consist of the house and any other structures, pools, sheds, garages, and so
forth. Next, most counties check the Marshall Valuation Service Cost Guide. It’s a standardized
nationwide guide for determining the value of the cost per square foot to build a building that
fits the description of the improved property. Next, if the house isn’t brand new, the
replacement cost is considered, as well as depreciation; the year the house was constructed
and the condition of the property are factors here. Appraisers then must take the critical step of
comparing the value of the house with recent selling prices of similar homes in the
neighborhood. At this point, the appraisal might stand “as is”—or it might be adjusted upward
Market Value is a theory, in other words—not an unchanging fact.
In a perfect world, you have to have willing buyer and a willing seller. Neither is under duress.
Both are in a position to maximize gain and are trying to do this. But in the real world, th